You might wonder how the Apple Watch case relates to other topics of this blog. Taking into account that Apple is one of the most valuable brands on this planet, it is not exactly a startup. At the same time introducing the Apple Watch has been like entering a whole new market segment which presents them with exactly the same challenge as all other founders. The main question for them has been to figure out a monetization strategy for their new product.
Golden Apple Watch pricing off the rails
Given Apple’s former pricing philosophy it didn’t come as a surprise that the entry level product is priced at $350 which is north of most competitive offerings such as the Motorola Moto 360 ($249) and the Samsung Gear 2 ($299). The moment of collective speechlessness arrived when looking at the high-end gold version, which is priced at $10.000. I’m not to judge the design or the materials but purely the product pricing, which is off the rails. Pricing best practices dictate an anchor price which is set at a high, but not a ludicrous, level.
Historically high, but consistent price deviations for Apple products
Looking at Apple products, there has been a wide range of markups depending on the product category. When looking at the iPhone 6 Plus the highest-priced version has been 27% more expensive then the entry level product.
So far Apple’s highest price deviation has been a markup of 341% for the Mac Mini. Arguably this is due to component prices which increase exponentially for high-end configurations.
Pricing consistency at its’ worst
Looking at the Apple watch, the Gold Version markup equals a 2,765% compared to the entry level version. Even the estimated cost for the gold materials of $1,200 cannot explain the markup since the product functionality is exactly the same as the one at a price of $599. Even so there might be a few buyers for this product one is wondering which customer segment Apple is targeting with this product.
Compared to any other Apple product family the Apple Watches are priced at the highest level of inconsistency.
Cross-industry comparisons | BMW & Vertu
For comparing I thought of two companies playing a similar role in their industries.
BMW as a car manufacturer of great performance and quality offers a high end version for most of their series. Looking at the 3 series there is an entry level product priced at about 30k EUR compared to the high end M version, which is priced at 72k EUR. This only equals a price markup of 143% even so the product performance increase is outstanding.
Vertu as a luxury phone manufacturer has a product portfolio catering to the rich and famous. Even so their product innovations might not be outstanding from a technology angle, extraordinary materials and designs are giving the brand it’s edge. Looking at the price deviations the markups are ranging from 13% to 375% for different product families. The most expensive Platinum smartphone is priced at 52,000 EUR compared to the 11,000 EUR entry level product. Given their target group the price deviation makes perfect sense.
Take-aways for founders
Re-focusing on the pressing issue of new product pricing there are a few take ways from this case:
- An out-of-this world anchor price ($10,000 in Apple’s case) will not boost the sales of alternative product versions, but only confuse other customers.
- It seems that Apple apply’s pure markups to their cost base. In some cases this will lead to massive price inconsistencies. Make sure your prices within and across product categories are consistent.
- For Apple even loyal customers will find the $10,000-price tag ridiculous. It remains to be seen how this will effect other product categories.